Quantitative "Analysts" & the Bubble
Elle
manipulating the mortgage backed securities market:
---
Speaking as someone who worked in the IT and risk area for credit
derivatives at one of the largest financial institutions -- it was
fraud on a massive scale.
Nobody really believed the risk management numbers for CDO's were
anything more than so many angels dancing on the head of a pin. I'm
talking about the quants/mathematicians, the traders and most of all
the high level executives at the top of the fixed income food chain.
What they did believe was that bonuses were paid out on an annual
basis for performance that was measured largely by sales. Not the
eventual value of the trades, which ended up being worthless.
These bankers should be dressed in orange pajamas and sent down to
Guantanamo. They are the real terrorists. Not the fake movie style
terrorists and bank robbers that the government wants us to believe in
-- who wear masks and carry guns.
No, these are the real bank robbers who work inside the institution
and would need tractor trailers to carry out all the money. Real bank
robbers wear suits and have the money transferred directly to their
own bank accounts.
What a joke that Goldman pretends to be innocent, and claims to have
"paid off their TARP money," while their biggest creditors --
including AIG -- were given huge amounts of taxpayer dollars to pay
off trades they had with Goldman.
The Goldman bonuses are our tax dollars at work. Plain and simple.
I was a witness to history. I saw it happen. The mathematical models
were so complex even the mathematicians made jokes about them.
Well, the joke is on all Americans.
--NYC Father
Manhattan
December 24th, 2009
9:07 am
Augustine
Now it's too late to complain about the spilled milk after giving them
an allowance without any responsibility, just a vague sense of thanks
for their campaign contributions.
Elle
Maybe. Yet I wonder if it is really fair to judge the bailout of these
banks and investment houses as misguided. I do not know what would
have happened to the economy if we had let the many banks and
investment firms go under. Did the bailouts rescue the little guys and
gals? Maybe. I guess time will tell more.
What Goldman Sachs was doing though stinks to me.
dapperdobbs
I don't think we should wait until 'next time.' I've written letters
to Congressmen. That we should let these jerks walk, but also cover
their bonus packages is just criminal negligence on our part. We're
not talking enough about literally hundreds of millions of dollars to
CEO's who either a) never understood what they were doing, or b) knew
it was destined to collapse, and c) in either case lied about it to
shareholders. We're also not talking enough about a Congress that
contaged "The Rapure of the Risk" and facilitated what amounts to
completely fraudulent reporting to the SEC. Goldman Sachs is still
around simply because it is "slicker" than the rest.
The destruction to the financial system in the 'banking crisis' had to
be repaired - most have grown accustomed to some form of civilization,
capitalism, and free markets. So the need to repair is not in
question. How it was done, has some unanswered specifics attached. The
aftermath is still with us: Zero interest rates have severely crimped
many retirees who relied on interest income, and the market crash
turned portfolios down in a big way.
The widespread volume of arrogance and stupidity of MBA's and PhD's is
truly staggering. It is a contagion in corporate America, IMO, and
extends to markets that used to be available to all, and now are not:
municipal issues, IPO's, small successful companies; all of these are
being bought up in markets "cornered" by large institutions and
corporations, often just to 'flip' IPO's and loot corporations of
cash.
Ultimately - and also very, very practically - the long-term solution
is the assumption of individual responsibility. Whether you call it a
code of honor, or a test of faith, or common sense and decency, one
must maintain one's own level of ethics, and not get sucked down into
the whirling cesspool.
Bill
culpable players of all, namely the rating agencies. The bankers could
not have gotten started without those bogus AAA ratings. Virtually no
one has bothered to criticize the rating agencies let alone suggest
meaningful changes to the system. For the number one bad guys it is
business as usual, therefore, you can be certain that something similar
will happen again in the future.
--
.Bill.
dapperdobbs
Bill,
You're right - the scale of what happened and the depth of it makes it
all a bit challenging to calmly sort out, for those of us (like me)
who are rather easily aroused. Real estate agents and appraisers also
played a role in this mess.
I genuinely wonder what happened to the American values of honesty and
knowing when enough is enough. Did things begin to deteriorate when
the Gordon Gecco character announced "greed is good" or are we
revisiting the age of the robber barons, or are we trying to enter a
new era in which values are set and stabilized? A bit off topic, but
this is something that has touched almost everyone, and perhaps worthy
of a brief discussion.
P.S. Merry Christmas :-)
Dapperdobbs.
Don
> Bill,
>
> You're right - the scale of what happened and the depth of it makes it
> all a bit challenging to calmly sort out, for those of us (like me)
> who are rather easily aroused. Real estate agents and appraisers also
> played a role in this mess.
You are both absolutely right. Also, two more culpable groups to add to
the mix: mortgage brokers and home inspectors. Many mortgage brokers
help people with bad credit, insufficient down payments, etc., get
loans for which they would not ordinariy be qualified at higher
interest rates than they can afford. Home inspectors tend to go along
with the real estate agents and the appraisers by ignoring or
downplaying some defects, structural faults, etc. that might turn away
buyers. The focus of all the players is to make the sale happen.
HW "Skip" Weldon
>You are both absolutely right. Also, two more culpable groups to add to
>the mix: mortgage brokers and home inspectors.
But let's not forget that while there is plenty of blame to go around,
at the bottom of it all was the unbelievably poor judgement exercised
by home buyers. Their greed is what created the demand for all the
nonsense we saw.
In the same way that drug user's poor judgement (demand for drugs)
drives the drug trade, would-be homeowner's poor judgment (demand for
the American Dream without regard for ability to pay) is what drove
the financial problems of the current recession.
I have no pity for them and resent like heck what they've done to the
rest of us. All they had to do was ask.
Don
<skip5700r...@yahoo.com> said:
> But let's not forget that while there is plenty of blame to go around,
> at the bottom of it all was the unbelievably poor judgement exercised
> by home buyers. Their greed is what created the demand for all the
> nonsense we saw.
>
> In the same way that drug user's poor judgement (demand for drugs)
> drives the drug trade, would-be homeowner's poor judgment (demand for
> the American Dream without regard for ability to pay) is what drove
> the financial problems of the current recession.
That is quite true. And it is legendary that con men are most
successful when the person being conned is hoping to get away with
conning someone else.
I am very much in favor of people owning their own homes, but that
American Dream need not be a monster structure beyond the person's
ability to pay. While we are at it, lets also bring in the greedy
developers and contractors who put up those structures trying the
satisfy the greedy buyers who are trying to keep up with the Jonses and
get ahead of the Jonses.
Elle
<skip5700removet...@yahoo.com> wrote:
> On Thu, 24 Dec 2009 20:38:50 -0600, Don <dwz...@telus.net> wrote:
> But let's not forget that while there is plenty of blame to go around,
> at the bottom of it all was the unbelievably poor judgement exercised
> by home buyers. �Their greed is what created the demand for all the
> nonsense we saw.
I would distinguish between real estate investors (whose goal was to
flip houses) and the relatively uneducated masses buying their first
and what would be their sole home. Some months ago I remember a study
was mentioned here showing that it was speculators that mostly drove
the housing bubble. Plus I cannot castigate the uneducated masses
before castigating lenders. For one, I believe it is now well known
that lenders frequently falsified the financial details of applicants'
situations.
Bill
financial acumen to first time home buyers that the majority do not
have. Yes, most first time buyers can figure out the maximum monthly
payment they can afford and that is all they understand. They don't
have the ability to understand what will happen to their affordable
monthly payment because they have been sold an ARM with a teaser rate.
To get the facts when a mortgage broker is intentionally trying to
conceal the truth you have to know what questions to ask and a very
large percentage of the first time home buyers caught in the mortgage
mess do not have that knowledge.
I have spent a lot of time over the last 40 years working with shop
floor level people in both manufacturing and service organizations and
99% of them are honest people trying to do a good job and take care of
their families. They are not trying to con anyone. They are only guilty
of not having the education and experience to spot someone trying to
con them. Personally, I have a lot of sympathy for those who were sold
mortgages they could not understand by brokers who deliberately
concealed the facts to line their own pockets.
Ouch! I think I twisted my ankle when I jumped off my soap box.<g>
--
.Bill.
Ron Peterson
> I would distinguish between real estate investors (whose goal was to
> flip houses) and the relatively uneducated masses buying their first
> and what would be their sole home. Some months ago I remember a study
> was mentioned here showing that it was speculators that mostly drove
> the housing bubble. Plus I cannot castigate the uneducated masses
> before castigating lenders. For one, I believe it is now well known
> that lenders frequently falsified the financial details of applicants'
> situations.
I got taken somewhat by the real estate bubble by buying home builder
stocks such as Pulte. I got out before the market totally collapsed
making a profit, but not as much as I could have by pulling out early.
My mistake was in not realizing that much of the assets of the home
builders were in vacant lots which the builders needed to get
economies of scale. The supply of lots is low in many areas because of
roadblocks to development in an effort to stop "urban sprawl". That
low supply sent lot prices too high inflating housing costs. When the
demand was reduced, lot prices fell creating a financial burden on the
home builders.
--
Ron
Yadda
"I would distinguish between real estate investors" That would be "real
estate speculators".
Yadda
After the credit bubble burst, all the players said the CDO objects were
too complicated to value properly. If so, how the hell did the bonds
issued from the CDOs get a AAA rating? Ergo -> Massive fraud!!!
Yadda
were bogus. In fact, they worked together to tweak the models to give a
AAA rating when many knew the risky tranche could blow up like it
eventually did. CROOKS!!!
Yadda
Since everyone dreams of a home, the buyer was easily taken advantage
of. There is some culpability but the major rests with the players who
architected the scam plumbing.
Yadda
Add local governments that loved the inflated property tax revenue!
Condo Craze!!!
Yadda
The US had 2 central banks before the FED. All instances has resulted
in massive volatility and losses. Central Banking has been a net
negative. Persons need to vet their banks and only invest in what the
person understands, not what the broker suggests. But most people are
sheep. So fat chance. US is going down.
======================================= MODERATOR'S COMMENT:
Please trim the post to which you respond. "Trim" means that except for some brief material to provide context for your remarks, the previous post is deleted. Thank you.
JoeTaxpayer
> I could not disagree with you more. You are ascribing a level of
> financial acumen to first time home buyers that the majority do not
> have. Yes, most first time buyers can figure out the maximum monthly
> payment they can afford and that is all they understand. They don't
> have the ability to understand what will happen to their affordable
> monthly payment because they have been sold an ARM with a teaser rate.
> To get the facts when a mortgage broker is intentionally trying to
> conceal the truth you have to know what questions to ask and a very
> large percentage of the first time home buyers caught in the mortgage
> mess do not have that knowledge.
>
>
> Ouch! I think I twisted my ankle when I jumped off my soap box.<g>
Soapbox or not, unfortunately you are right on target. The difference in
the payment required in the interest-only payment at the teaser rate, vs
the fully indexed rate was outrageous. A financial time bomb. There are
endless stories of people caught in the crossfire but the most
heartbreaking to me start with, "We had a 5% 30 year fixed mortgage, but
the broker showed us how we could free up $500/mo by going to...." And
once that new product fully adjusted, they had a payment far higher than
when they started.
No, I've come to accept the fact that most people are not savvy enough
to know what questions to even ask. That's the unfortunate thing. I
consider the option ARM scam to be no different than all the other scams
otherwise bright people get caught up in.
Joe
www.joetaxpayer.com
Will Trice
> There are
> endless stories of people caught in the crossfire but the most
> heartbreaking to me start with, "We had a 5% 30 year fixed mortgage, but
> the broker showed us how we could free up $500/mo by going to...." And
> once that new product fully adjusted, they had a payment far higher than
> when they started.
> No, I've come to accept the fact that most people are not savvy enough
> to know what questions to even ask. That's the unfortunate thing. I
> consider the option ARM scam to be no different than all the other scams
> otherwise bright people get caught up in.
It's tempting to call the whole option ARM thing a scam, and maybe it
was. But the folks I talked to that were using ARMs prior to the bottom
falling out of the housing market all made excuses like they would
refinance when the adjustments hit, or they would sell and move, blah
blah. In other words they were just gambling that they wouldn't get
stuck with a depreciating house or that interest rates wouldn't move up
dramatically. It's hard for me not to see this whole thing as a bunch
of deadbeats that don't want to pay on the contracts they made. I know
that this is a callous attitude and certainly not true in many cases,
but I know there are people who are getting mortgage adjustments that
damn well knew what they were getting into in the first place, if not
necessarily the ramifications.
Who's to blame for a drug addiction? The user or the pusher? Certainly
they both bear blame, but some personal responsibility is to be
expected, isn't it?
-Will
will dot trice at comcast dot net
Bill
> In other words they were just gambling that they wouldn't get stuck
> with a depreciating house or that interest rates wouldn't move up
> dramatically. It's hard for me not to see this whole thing as a
> bunch of deadbeats that don't want to pay on the contracts they made.
I don't think anyone is trying to argue that there are not people who
tried to scam the scammers as you describe and, like you, I have little
sympathy for them. They should not gamble if they cannot afford to
lose. My contention is that you can split the home buyers who got
caught in this mess into two groups; lets call them the gamblers and
the ignorant. All I am saying is that the ignorant comprise a very
large fraction, possibly or even probably the largest fraction, of the
total and they simply got lied to with no means whatever of detecting
the lie. I have a lot of sympathy for them.
--
.Bill.
TheMightyAtlas
> Soapbox or not, unfortunately you are right on target. The difference in
> the payment required in the interest-only payment at the teaser rate, vs
> the fully indexed rate was outrageous. A financial time bomb. There are
> endless stories of people caught in the crossfire but the most
> heartbreaking to me start with, "We had a 5% 30 year fixed mortgage, but
> the broker showed us how we could free up $500/mo by going to...." And
> once that new product fully adjusted, they had a payment far higher than
> when they started.
> No, I've come to accept the fact that most people are not savvy enough
> to know what questions to even ask. That's the unfortunate thing. I
> consider the option ARM scam to be no different than all the other scams
> otherwise bright people get caught up in.
> Joewww.joetaxpayer.com
I know any number of people who played the lottery knowing fully well
that they were gambling on the future price apprciation and their
ability to refinance two, three or five years down the road. Some got
burned, some didn't. But I only know one person personally who really
didn't seem to know what they were doing. And even that person thought
he was getting away with something.
I live in the Boston area, where the house price to income ratios got
crazy in the 2003-2006 timeframe. But too many homeowners thought they
had hit the lottery. I know lots of people who did cash out
refinancing to live well beyond their means for a while. Electricians
buying $40,000 boats, jaccuzis, $30,000 man caves. All using their
houses as ATMs. Even the people who sold us our house in 2004, made
$250k on the deal, bought a bigger house with an ARM and were bust
three years later. But they lived the life of Riley for three years.
Our income is probably three times theirs, but for a while they lived
better than us.
I am a loony leftist, but I am not loony enough to reflexively blame
the banks for the consumer end of this. I have a bigger beef with them
on the investor side, the way the loans were packaged and the
securities rated.
Don
> My contention is that you can split the home buyers who got
> caught in this mess into two groups; lets call them the gamblers and
> the ignorant. All I am saying is that the ignorant comprise a very
> large fraction, possibly or even probably the largest fraction, of the
> total and they simply got lied to with no means whatever of detecting
> the lie. I have a lot of sympathy for them.
And along the lines of the drug user/pusher analogy, a better analogy
might be the addiction to cigarettes. Some people might have been aware
of the medical facts back in the early twentieth century and chose to
gamble and go ahead and smoke. But far more people were simply unaware
of the risks of smoking. The manufacturers and sellers of cigarettes
didn't go out of their way to mention the risks.
Ron Peterson
<skip5700removet...@yahoo.com> wrote:
> But let's not forget that while there is plenty of blame to go around,
> at the bottom of it all was the unbelievably poor judgement exercised
> by home buyers. �Their greed is what created the demand for all the
> nonsense we saw.
How are homebuyers to know what is a reasonable price for a house. If
the economy is booming in an area, why not pay more for a house in
that area?
--
Ron
Don
> How are homebuyers to know what is a reasonable price for a house. If
> the economy is booming in an area, why not pay more for a house in
> that area?
The issue is not so much the price of the house, but rather what a
buyer in a given area can afford, not only at the time of purchase with
an ARM, but in the future when interest rates increase.
Another important aspect of the crisis should not be overlooked: the
manner in which banks packaged and sold the sub-prime mortgages. It
would be interesting to go back into the archives of this newsgroup and
other financial newsgroups and read what people had to say about
"mortgage-backed securities" at the time they were first introduced.
Douglas Johnson
>Another important aspect of the crisis should not be overlooked: the
>manner in which banks packaged and sold the sub-prime mortgages. It
>would be interesting to go back into the archives of this newsgroup and
>other financial newsgroups and read what people had to say about
>"mortgage-backed securities" at the time they were first introduced.
This group wasn't around when the first mortgage backed security was issued in
1970. See http://en.wikipedia.org/wiki/Mortgage-backed_security
Like sometimes happens, MBS were a good idea that got perverted.
-- Doug
Don
> This group wasn't around when the first mortgage backed security was issued in
> 1970. See http://en.wikipedia.org/wiki/Mortgage-backed_security
>
> Like sometimes happens, MBS were a good idea that got perverted.
Thanks. That is an interesting article. I guess my concern is when and
how the perversion got started, which I assume happened during the last
decade.